Accrual-based earnings management and real earnings management around two key corporate governance regulatory regime changes in Thailand

Abstract

Two major corporate governance-related regulatory changes, one in 1999 and one in 2008, were implemented as a means to increase the independence of boards of directors of public companies in Thailand. I study whether each of these regulatory changes affects the degree of and leads to substitution of accrual-based earnings management (AEM) and real earnings management (REM), plus the effect of family ownership on the type and degree of earning management. The outcomes of the two regulatory changes are different with respect to earnings management. Univariate tests suggest no change in the levels of AEM and REM for the 1999 change. However, for the 2008 change, AEM decreases and REM increases, suggesting firms substitute between AEM and REM. Regression results suggests complementary relationship for regulatory change in 1999, however the results are not robust. Results for the 2008 regulatory change however provide robust evidence of a complementary relationship. The results are similar for firms with higher ownership concentration.